Image source: pexels.com
Being in debt at a young age can be very stressful. It is not uncommon for people who are still living with their parents or have just graduated from college, to find themselves struggling financially and having trouble paying off debts they incurred while growing up. However, being in a lot of debt as a young adult can cause stress and anxiety as well as feelings of shame and embarrassment.
While some are able to pay back the money that was borrowed, others end up getting into more serious financial problems because of it. If you’re a young adult who wants to get out of a deep debt hole before your life becomes unmanageable, this guide will help you understand how to do so.
1. Understand Your Finances
Before you start trying to fix any kind of problem, you need to know what exactly is going on. This means taking time to sit down and make sure that you fully grasp all aspects of your finances. You need to know where all your money goes each month including everything from rent/mortgage payments, car loans, credit card bills, student loans, utility costs, and more.
To make understanding your finances easier, you can use an app that allows you to keep track of every single penny you spend throughout the entire year. There are also other apps that help you budget your expenses and monitor spending trends over time. These types of tools allow you to see if there’s anything unusual about your spending habits and whether or not you might be making unnecessary purchases.
Once you understand your current situation, you can set aside enough money to cover future monthly debt obligations.. The amount of money needed depends on many factors like interest rates, property taxes, home maintenance fees, and more. Once you’ve figured out how much extra cash you’ll need to save, you should then look for ways to cut back on your regular expenditures so you can be debt-free.
2. Always Try Paying More Than the Minimum Payment
Some people find themselves in debt because they only pay the minimum payment required by their creditors. The minimum payment is usually determined based on your balance owed and the length of time you owe them. But when you only make the minimum payment, you don’t actually cover the full amount owed. Instead, you leave yourself open to being charged extra fees for late payments.
This is never a good idea since doing so could cause you to go further into debt than ever before. Always try increasing your monthly payments whenever possible. By doing so, you’ll save yourself thousands of dollars over the course of several years. The same principle applies when dealing with credit cards. Rather than always paying the lowest amount allowed, increase your payments whenever possible.
3. Know Which Debts to Prioritize
Learning what kinds of debts you owe is only half the battle when it comes to fixing your finances. The next step is knowing which ones should take priority. There are certain debts that need to be paid right away because they carry high interests. If they aren’t dealt with immediately, these interest rates could quickly add up to hundreds or even thousands of dollars per year.
Once you’ve identified which debts you must deal with first, you’ll need to figure out ways to prioritize them. One way to accomplish this is by using snowballing techniques. With this method, you begin by paying off one small amount, and once that has cleared, move on to another smaller sum. After that, you continue doing the same thing until you’ve paid off the whole balance owed. By starting with the smallest amounts possible, you ensure that you won’t run out of funds too soon.
In addition to prioritizing your debts, you also want to consider whether any particular type of debt will help or hurt your chances at getting out of debt sooner. Credit card companies often charge higher interest rates if you have outstanding balances from previous purchases. In contrast, student loans tend not to accrue interest while you’re still enrolled in school. You might therefore decide to focus solely on clearing those types of accounts instead of tackling other types of debt.
4. Change Your Money Habits
When tackling a financial issue like debt, it’s important to get out of a bad money mindset. Many people struggle with being frugal because they don’t want to give things up. However, cutting back on frivolous spending is important because it helps you save money without sacrificing quality items. For example, instead of going out to eat whenever you feel like eating something different, try cooking meals at home. Or instead of buying expensive clothes, go thrifting and look online for deals.
Additionally, learning how to use a credit card responsibly can help you build good credit history, which could lead to lower interest rates on new loans in the future. Use your cards wisely by only charging things that are necessary and avoid buying items you cannot afford right away. And as mentioned previously, try to pay off your balance every month rather than waiting until the next billing cycle. When you consistently pay off your balances on time, you may even qualify for rewards programs offered by various banks.
5. Try Increasing Your Income
If you can’t come up with enough cash each month to meet all of your obligations, try looking for new sources of income. While some jobs offer little flexibility, others allow you to set your own hours and choose how much you wish to earn. For example, some people like to sell their old stuff online. There are a variety of online platforms that allow you to sell secondhand clothes, books, and other belongings so you can earn more cash. Others can also start a side business selling crafts or handmade goods. Who knows? Your passions or hobbies can be a great way to generate additional income.
You can also try refinancing an existing loan or debt. Refinancing is simply changing the terms under which you currently pay back money borrowed. It’s usually done through a bank or financial institution rather than directly between two individuals. This can provide you a way to lower your overall cost of borrowing. There are also many benefits associated with refinancing including lower interest rates, better repayment options, and sometimes tax breaks.
6. Seek Help From Professionals
If none of the above steps seem to be working, then it may be time to seek professional advice. Debt consolidation companies offer many services designed to help consumers manage their finances better. They will often combine multiple accounts into just one account so that you no longer have to worry about remembering how much is due on various accounts. Other times, debt consolidators will negotiate lower monthly payment options so that you pay less overall.
It may be worth looking into personal finance coaching as well. A financial coach works closely with clients to develop strategies for managing their budgets and saving money. Some coaches specialize in helping individuals get rid of debt while others focus more on retirement planning. Either way, finding someone who understands where you stand now and can provide guidance moving forward will likely improve your situation.
7. Start Saving Now
Even if you don’t have outstanding debt at the moment, there is absolutely no harm in saving now. It’s never too early to start putting some extra money aside each month. This doesn’t mean you have to put all your savings into an investment account; however, you do want to set yourself up for success later down the road.
Determine a certain amount of dollars per paycheck that you would like to allocate towards your savings goal. Then, when those funds come through, deposit them directly into your bank account instead of using them for something else. By doing this, you ensure that you always have access to the money you saved without needing to worry about running low on funds. This helps you avoid being in debt through providing you the opportunity to build up a cushion of emergency funds.
The Bottom Line
Debt can be an overwhelming problem for anyone, but if you’re serious about getting control over your finances, you need to put some effort into tackling it head-on. You don’t need to be overwhelmed by all the information out there; rather, use the tips outlined here to find solutions that fit your needs. It’s not always easy, but following through on these tips can help you get rid of that debt for good. Good luck!
About The Author
Sophia Young recently quit a non-writing job to finally be able to tell stories and paint the world through her words. She loves talking about fashion and weddings and travel, but she can also easily kick ass with a thousand-word article about the latest marketing and business trends, finance-related topics, and can probably even whip up a nice heart-warming article about family life. She can totally go from fashion guru to your friendly neighbourhood cat lady with mean budgeting skills and home tips real quick.